Tuesday, July 11, 2017

In this article, Bas Grasmayer explores the significance of two developing technologies, chatbots and block, and how these two avenues of technological advancement, and their convergence, will serve to shape the future of the music industry.

I want to make this Projecting Trends instalment more personal, since it’s the last regular edition in the series. I’d like to talk about the convergence of two important trends: chatbots and blockchain. In recent weeks, I was blessed to moderate a chatbot panel at Midem in Cannes with a stellar line-up of speakers, and a thought-provoking panel about blockchain in music at Sónar+D in Barcelona.

Blockchain is a big topic, and the way the music business looks at it is actually limited, and limiting. But first, let’s delve into something that’s easier to understand: chatbots.

Chatbots — the next big platform?

Within 3 weeks of launching it, Hardwell had already amassed over 250,000 fans on his Facebook Messenger chatbot. A few months later, Facebook Messenger had become the most important merchandising sales channel for the EDM star, revealed Syd Lawrence of The Bot Platform at Midem:

“With Hardwell, we launched a picture book and it drove more sales than Google, Facebook and Twitter combined. It’s ridiculous!”

The consensus on the panel was that it’s not about the bots, not about doing silly chat scripts, but more about the channel of messaging apps. Facebook Messenger alone has over 1.2 billion monthly active users.

Messaging is the new platform, and bots are the new apps

The iPhone, released in 2007, brought with it an explosion of apps. Now, people have app fatigue, and bot designers are seeing people would rather interact with you through apps they’ve already got installed (messaging apps), than to install yet another app. Since they’re automated, bots are like small programs that run on top of messaging platforms, you can even add buttons to conversations, which can create a call to action or give users options to choose from.

If we ignore Asian markets, which have their own social landscapes, one of the first messaging platforms that opened up an API so that developers could build experiences on top of their platform was Kik, which boasts 300 million users and has 40% market penetration with US teenagers.

The next wave of devices to enter our lives are not more smartphones, but voice-controlled interfaces, like the Amazon Echo or Google Home. With the development of Artificial Intelligence and the increase of sensors in our environments, these devices will show increasingly intelligent behaviour, enabling augmented reality. Since chatbots already operate as conversational interfaces, they closely resemble what the apps of the future will look like.

Looking 10 years forward, one of the most important bits of news in recent weeks was not Spotify’s earnings (or losses), but it’s what Kik is doing next with its ecosystem of bots.

Kik is launching its own blockchain-based cryptocurrency: Kin

Buzzword alert. I know. I’ll try to make it understandable.

Kik has been operating an in-app currency which can be rewarded to users for performing certain actions like watching ads or unlocking achievements. These points can then be spent in Kik’s ecosystem of apps and chatbots. This means if one app rewards you for something, you can spend it in another. That’s already pretty cool, but Kik announced that it’s moving that onto the blockchain, and that’s huge news.

If you’re not familiar with blockchain, it’s the technology powering Bitcoin. Using blockchain, people can make cryptographically secure peer-to-peer transactions, without the use of an intermediary. These transactions are stored in a distributed ledger, and all records kept on the ledger are immutable, which means that you can’t change the values, you can only append new ones, which generates a type of change log. For Bitcoin, this created an unregulated digital currency. But more is possible with blockchain.

Blockchain and the Internet of Value

The most popular blockchain besides Bitcoin is Ethereum. Ethereum allows for smart contracts, which means you can create small programs that live on this distributed ledger. For a deep dive, I recommend a recent write-up I did about blockchain pioneers in music.

What smart contracts enable is for transactions to be automatically triggered once certain criteria are fulfilled. Instead of doing this via a middleman, it’s done through this peer-to-peer distributed medium.

Ethereum is popular, because it can be used not just to transfer value between users, but also to automate things. In order to run smart contracts on the Ethereum blockchain, you need to have ‘Ether’ which is the token or cryptocurrency for this particular blockchain. The smart contract is actually executed using the computing resource of one of the nodes in the network – in exchange for using this resource you use Ether as ‘gas’. So, the person making their resources available gets value out of your transactions.

Ether is either purchased or earned, but it ensures a way to exchange value among all participants on the network, rather than one player (e.g. Facebook or your hosting provider) taking all the value generated by its network of users. In the end, tokens represent an atomic unit of a company’s business model.

Still with me? Let’s talk about what it means for Kik.

By making their in-app currency blockchain-based, Kik is now able to let people who participate in their economy get even more value out of it. Their in-app points already saw 3 times the transaction volume of Bitcoin, and now the mechanism will provide “a powerful way to compensate developers and creators without relying on advertising.”

A tokenized social layer

By decentralizing its social layer, Kik can actually make a lot of money, despite not running ads. As the initiator of their new cryptocurrency, Kin, they get to do an ‘Initial Coin Offering’ (ICO). Users can purchase this currency, at low rate, to use as gas on the blockchain. Over time, with use this will increase, and so too will the value of individual tokens. This aligns the incentives of participants on the network: the growth of the network and the appreciation of the token.

On traditional social networks the incentives of the participants are not aligned:

Users want to talk to friends, uninterrupted, and maintain privacy;

The social network wants to know as much about you as possible for ad targeting;

The advertiser wants to interrupt your conversation to sell their stuff.

On a blockchain-based network, you don’t actually need the advertiser all that much: companies like Kik can focus on growing their network and as it grows, so too does the value of the vast amount of tokens they own, so they can earn money along the way, and so can their users who have invested in the network.

So what does it mean for music?

The last 10 years have been the decade of apps, of social platforms like Twitter and Facebook, and of smartphones. Now we’re heading into a decade of artificial intelligence, smart devices beyond the phone, and conversational interfaces. The underpinning may well turn out to be the same thing that underpins Bitcoin: the decentralizing technology of blockchain in which the participants of the network earn value together.

It creates a new economic model, one that relies more on participation than on advertising or possibly even subscriptions.

The smartphone and the Facebook-stlye social network provided the context which facilitated the rise of streaming, the rise of direct-to-fan, and services like Spotify and YouTube as a music service. The combination of blockchain and chatbots creates a new context for a next generation of music economy.

Blockchain is much bigger than just figuring out a new way to properly do a Global Repertoire Database. It creates a new economy.

These ICOs (initial coin offerings) are bringing in huge amounts of money: one raised $35 million in under 30 seconds, and in total they’re now surpassing venture capital investment in the blockchain space. Music industry analyst Mark Mulligan recently reminded his readers of the fact that not so long ago an ISP (AOL) bought Warner Music Group and a water and sewage conglomerate (Vivendi) bought Universal Music Group. As the blockchain space heats up, it’s not unthinkable that one day money from blockchain entrepreneurs, a peer-to-peer technology, mind you, will be used to buy music companies.

For more about this topic, read Trent McConaghy’s article Tokenize the Enterprise, in which he envisions what Facebook and Amazon would look like as tokenized, blockchain-based organisations.

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Bas Grasmayer is a digital strategist and founder of MUSIC x TECH x FUTURE, a consultancy agency and weekly newsletter discussing trends and innovation in technology and how they may impact the music business. He also curates Synchblog's Projecting Trends series.